President's Message - December 2016

To Tax Or Not To Tax

Santa Barbara, like most cities across the state (and, frankly, around the country) has a tremendous backlog in infrastructure work that it must address. The number is something like $450 million in non-enterprise fund projects (i.e. streets and roads and buildings, not water and sewer), a number that is 17 times higher than the annual capital budget for the City, and half again larger than the City’s entire annual budget.

The projects at the top of the list of things that need to be accomplished look like a wish list that the business community has pushed for years. These include major improvements in streets, roads and sidewalks, needed improvements on some antiquated City facilities, and the construction of a new Police Department building.

The Council is currently grappling with how to pay for this, something I’ve covered in previous commentaries. Your Chamber is engaging with a number of different groups hoping to craft something that will pass the muster of voters and our members alike, but there is a topic that needs to be addressed before we even get to the how.

Why do we need to pay more?

I hear this question asked by some of our members – folks who work hard and maintain their businesses with their own resources. Why can’t the City just reprioritize its spending and pay for these projects out of existing funds?!

There are many reasons why, but one of the biggest is that government infrastructure financing is not as simple as “local roads are paid for by local dollars”. Historically, city infrastructure comes from a number of different pots, including state and federal dollars provided to local governments (a good example of this are all of the bridges we’ve recently completed in the City, with the federal government covering 90% of the cost). The notion that “City’s used to pay for all their infrastructure needs out of their own pockets” is simply not true.

So that being the case, and with all of the talk in Washington DC about the new administration’s goal of investing in infrastructure, why talk about a tax increase now? Shouldn’t we wait to see if President Trump gets an infrastructure package together that can pay for our needs?

Regardless of whether such a funding program comes out of Washington DC, one thing for certain is that any money we may receive to help pay for our infrastructure needs will need some sort of “match” – just like the 10% of bridge replacement cost we’ve been paying in order to get the federal government to cover the other 90%. Nothing is coming to us “for free”.

As the business community reviews the pending proposal for a sales tax increase to pay for transportation, here are just a few things we might keep in mind in general when it comes to this issue:

1) Businesses Thrive From Infrastructure Spending.

When government invests in infrastructure, we all benefit in a number of ways. For every $1 we invest in infrastructure, $3 in economic activity is generated. Apart from the private sector companies and employees doing the construction itself, businesses benefit from the new and improved roads that are built. Our police department would work more efficiently and have an easier time recruiting with a state-of-the-art facility that meets basic health and safety rules – something that can only help businesses. Nationwide, we’d see a $320 billion increase in economic output by 2020 if US infrastructure spending were increase by 1% of GDP per year. A smaller infrastructure package, $83 billion dollars, would create 1.7 million jobs.

2) Potential Investment Must Come From The State.

While we’ve seen significant investment of late from the federal government, the State of California must step up and do its part. After balancing its budget in the middle of the great recession on the backs of municipal governments across California, our state has yet to make any significant changes to “pay those cities back”. This includes the lack of any effort to recreate Redevelopment Areas (the program that built our parking structures in downtown Santa Barbara – and so much more). The legislature needs to continue to push Governor Brown away from the costly high speed rail program and toward reinvesting in our cities and counties in a number of important ways.

3) Santa Barbara’s Sales Tax is Relatively Low.

Not that we should be comparing how much others charge in sales tax as our only barometer, but Santa Barbara is currently pretty low on the list when it comes to how much our sales tax is compared to other jurisdictions comparable to us. Sales Tax increases are one of the few means Cities have to put significant infrastructure programs in place, so it is generally the go-to for streets, roads, sidewalks and buildings. Santa Barbara is currently at 8%, while Santa Maria is at 8.25%, Carmel is at 8.625%, Santa Cruz is at 8.75%, Venice and Malibu are at 9% and Santa Monica is at 9.5%.

No one like tax increases (at least no one who has to pay for those increases) but businesses generally benefit from taxes that specifically go to pay for better infrastructure in our communities. I encourage you to join us at our GRC meetings over the next few months as we discuss the proposals on the table, and engage on how best to ensure our world-class city has the infrastructure we deserve.